Income Tax Appellate Tribunal - Delhi
Deputy Commissioner Of Income-Tax vs Dalmia Cement (Bharat) Ltd. on 22 June, 2007
ORDER
K.G. Bansal, Accountant Member
1. This appeal of the revenue arises out of the order of the CIT(Appeals)-XIII, New Delhi, passed on 14.10.2005. The corresponding assessment order was framed by the Additional Commissioner of Income-tax, Range-10, New Delhi, under the provisions of Section 143(3) of the Income-tax Act, 1961, on 07.03.2005. The revenue has taken five grounds in the appeal, which are reproduced below for the sake of ready reference:
On the facts and in the circumstances of the case and in law, the ld. CIT(A) has erred in:
1. deleting addition of Rs. 23,86401/- made by the Assessing Officer on account of payment of remuneration paid to field/sales staff for organizing sales of non-levy cement without appreciating the fact that the orders relied upon by him have not been accepted by the revenue and same are pending before the Hon'ble High Court.
2. Deleting the addition of Rs. 30,25,135/- made by the Assessing Officer under Section 40A(9) of the Act on account of employees welfare including payments made to the staff recreation clubs, without appreciating the facts that the orders relied upon by him have not been accepted by the revenue and same are pending before the Hon'ble High Court.
3. Law to allow depreciation on water installation, waterworks and water distribution system @ 25% as applicable to plant and machinery as against 10% allowed by the Assessing Officer applicable to 'building' as well and tube wells, the water works and water installation system are part of buildings and not 'plant and machinery'. The CIT(A) failed to appreciate that order relied upon by him have not been accepted by the revenue and same are pending before the Hon'ble High Court.
4. Deleting addition of Rs. 79,69,280/- on account of excess price realized under the Sugar Incentive Scheme, without appreciating the fact that the orders relied upon by him have not been accepted by the revenue and appeal has been filed in ITAT against those orders.
5. Directing to allow depreciation on dish antenna system, without appreciating the fact that the orders relied upon by him of earlier years have not been accepted by the revenue and same are pending before the Hon'ble High Court.
2. Ground No. 1 is against the deletion of the addition of Rs. 23,86,401/-, made by the Assessing Officer on account of payment of remuneration to field and sales staff and it is mentioned that the orders of earlier years passed by the Tribunal have not been accepted by the revenue. Consequently its appeal is pending before the Hon'ble High Court of Delhi.
2.1 In this connection, it was submitted before the learned CIT(Appeals) that this issue was decided in favour of the assessee by the CIT(Appeals) for and up to assessment year 2001-02. It was further submitted that the orders of the CIT(Appeals) for assessment years 1988-89, 1994-95 and 1995-96 were upheld by the Tribunal. In these circumstances, the ld. CIT(Appeals) pointed out that there was no change in the facts of the case for this year vis-a-vis the facts in earlier years and, consequently, the addition was deleted.
2.2 Before us, the learned DR pointed out that revenue's appeals for earlier years were pending before the Hon'ble High Court of Delhi and in view thereof this appeal may also be kept pending. For this proposition, he relied on the decision of Hon'ble Delhi High Court in the case of CIT v. Popular Jewellers . In that case, the revenue had moved appeal to the Hon'ble High Court against the findings in quantum proceedings. In penalty appeal, it was not brought to its notice that a reference was pending before the Hon'ble Court against the order in quantum appeal. Consequently, the Tribunal had no option but to delete the penalty as the basis of levy of penalty did not exist. The Hon'ble Court pointed out that appropriate course would have been that the pendency of a reference in the quantum proceedings should have been brought to the notice of the Tribunal with a request to adjourn the hearing sine die to await for the order of the Hon'ble High Court. However, as mentioned earlier, this was not done. The Court held that the present application could not be entertained and kept pending merely because it was in the interest of revenue to do so. The case of the learned DR was that since decision in quantum appeal for earlier years is awaited, this appeal may be kept pending.
2.3 The learned Counsel opposed the proposal of the learned DR. It was pointed out that in the case of Popular Jewellers, the quantum appeal was pending before the High Court for the same year for which the penalty proceedings came up before the Tribunal. Even in that case, the application of the assessee was not accepted by the High Court. In this case the revenue has challenged the findings of the Tribunal on quantum in earlier years, but the order of the Tribunal has not been stayed by the High Court. Therefore, it will not be appropriate to keep the appeal pending as each year is a separate year. On merits, reliance was placed on the orders of Hon'ble ITAT in ITA Nos. 4426(Del)/2004, 9(Del)/1999 and 3559(Del)/2000 for assessment years 2001-02, 1993-94 and 1996-97 respectively. In the combined order for assessment years 1993-94 and 1996-97 dated 8.7.2005, a copy of which was placed on record, the issue was decided in favour of the assessee by relying on orders in ITA Nos. 4430(Del)/1991, 5696(Del)/92 and 3926(Del)/94 for assessment years 1986-87, 1987-88 and 1988-89. This order was followed in ITA No. 4426(Del)/2004 for assessment year 2001-02 dated 22.9.2006.
3. We have considered the facts of the case and the rival submissions. We find that the issue regarding deduction of remuneration paid to field and sales staff for organizing sales of non-levy cement has been consistently decided in favour of the assessee by the Tribunal over a number of years including the years referred to above. Respectfully following those decisions, this ground is dismissed.
4. Ground No. 2 is against the deletion of an addition of Rs. 30,25,135/-, made by the Assessing Officer Under Section 40A(9) of the Act in respect of expenditure on employees welfare including payments made to Staff Recreation Club and it is also mentioned that the revenue had not accepted the orders of the Tribunal for earlier years and the matters were pending before the Hon'ble High Court of Delhi.
4.1 In the aforesaid connection, it was pointed out by the learned CIT(A) that the observations made by the Assessing Officer for disallowing the impugned amount were the same as the observations made in the orders for assessment year 2000-01 and 2001-02. The stand of the assessee was also the same as in earlier years. It was pointed out that there was no material change in the facts of this year vis-a-vis facts of earlier years. As the matter was decided in favour of the assessee by his predecessors, the same was decided in its favour in this year also.
4.2 The arguments of the learned DR for keeping the appeal pending and the arguments of the learned Counsel for deciding the appeal were same as in regard to ground No. l (supra). The learned Counsel also relied on the decision of the Tribunal in ITA Nos. 909(Del)/99 and 3559(Del)/00 for assessment years 1993-94 and 1996-97 respectively dated 8.7.2005, a copy of which was placed before us. Paragraph 16 of that order dealt with similar controversy and the matter was restored to the file of the Assessing Officer for fresh decision after hearing the assessee with a view to establish that its claim was not hit by the provisions of Section 40A(9) of the Act. This decision was followed in ITA No. 4426(Del)/2004 for assessment year 2001-02 dated 22.9.2006. Respectfully following those orders, we restore the matter to the file of the Assessing Officer with a direction to hear the assessee on the issue of applicability of Section 40A(9) and make fresh order thereafter. Thus, ground is treated as allowed for statistical purpose.
5. Ground No. 3 is against deduction of depreciation @ 25% on water installation, water works and water distribution system as against the deduction of 10% allowed by the Assessing Officer by treating these works as "buildings".
5.1 The arguments of the learned DR and the learned Counsel for keeping the appeal pending on this issue and deciding the appeal respectively are the same as mentioned in ground No. 1 (supra). As mentioned in ground No. 1, we proceed to decide the issue on merits. The learned Counsel pointed out that this issue is covered in ITA Nos. 909(Del)/99 and 3599(Del)/2000 for assessment years 1993-94 and 1996-97 in favour of the assessee. Paragraph 22 of that order deals with the controversy at hand. It is mentioned that the issue was decided in favour of the assessee in ITA No. 4430(Del)/1991 for assessment year 1986-87 and while passing that order the Tribunal had relied on an earlier order for assessment years 1984-85 and 1985-86. After considering the issue, it was pointed out that the controversy in assessment year 1984-85 was limited only to bore-well, which was held to be the plant. The assessee has given a common name to the whole of the water distribution system. In this situation, the Assessing Officer was directed to examine as to how much of it comprised of civil construction and how much of it comprised of machinery or plant. It was held that after bifurcating the costs under two headings, the Assessing Officer shall grant depreciation accordingly at the rates applicable to building and plant and machinery. This issue also came up for decision in ITA No. 4426(Del)/2004 for assessment year 2001-02, in which orders for assessment years 1993-94 and 1996-97 (supra) were followed. Relying on those orders, the Assessing Officer is directed to bifurcate the costs in terms of civil construction and plant & machinery and allow depreciation at the applicable rates to these assets. Thus, this ground is treated as partly allowed.
6. Ground No. 4 is against deletion of an addition of Rs. 79,69,280/-, made by the Assessing Officer in respect of excess price realized under the Sugar Incentive Scheme and it was mentioned that the appeal of the revenue is pending against earlier orders of the Tribunal. In this connection, it was represented before the learned CIT(A) that there was no change in the facts of this year vis-a-vis the facts of earlier years, namely, assessment years 1999-00, 2000-01 and 2001-02, in which his predecessors had decided the matters in favour of the assessee. Following those orders, the ground was decided in favour of the assessee.
6.1 Before us, the learned DR pointed out that the Hon'ble Allahabad High Court has decided the matter in favour of the revenue in the case of CIT v. Kissan Sehkari Chini Mills Ltd. and, therefore, the issue requires fresh adjudication by the Tribunal. In that case, one of the questions before the Hon'ble Court was whether, on the facts and in the circumstances of the case, the Tribunal was legally correct in holding that the incentive of Rs. 2,10,67,677/- received by the assessee by way of additional quota for fresh-sale sugar, which is directly connected with the business activities of the assessee, was on capital account and hence not taxable as a revenue receipt? The Hon'ble Court considered a number of decisions, including that of Hon'ble Supreme Court in the case of Sahney Steel & Press Works Ltd. v. CIT and CIT v. Rajaram Maize Products , in which it was held that the amount of subsidy received as incentive for production or running of an industry was of revenue nature. The Hon'ble Court answered this question in favour of the revenue and against the assessee. On the basis of this decision, the case of the learned DR was that since the sale proceeds of the sugar related to stock-in-trade of the assessee, therefore, the excess price realized in view of exemption under the Sugar Incentive Scheme was of revenue nature. He referred to the order of Hon'ble Tribunal, Delhi Bench 'G' in the case of Joint Commissioner of Income-tax v. Dalmia Cement (Bharat) Ltd. (2005) 97 ITD 78, being the decision in the case of the assessee. In paragraph 35 of the order, it was mentioned that considering the legal position as enumerated above by the Hon'ble Apex Court, we are of the view that the learned CIT(Appeals) erred in not determining the further question as to whether and to what extent the view held by him would affect the assessee's tax liability. It was further mentioned that the view of the Assessing Officer was that the amount in question represented trading receipt of the assessee. He was not faced with the question whether the amount of incentive should be deducted from the cost of the asset. It was also mentioned that the learned CIT(Appeals) held the amount to be a capital receipt. It was also mentioned that we do not wish to record any finding in question on the issue of deduction of actual cost, nonetheless, we are of the view that this aspect is required to be looked into and implemented. On the issue of the nature of receipt, it was held that having regard to decisions of various High Courts and orders of the Tribunal, the sum of Rs. 22,82,996/- could not be assessed as revenue receipt and the order of the learned CIT(Appeals) was justified in the matter. His case was that the impugned order of the Tribunal was not a speaking order and, therefore, it could not be taken as a precedence for deciding the issue in this year. It was also pointed out that while various decisions of Hon'ble Supreme Court were referred to, the aforesaid paragraph 35 stated that having regard to various High Courts judgments and orders of the Tribunal, the impugned sum of Rs. 22,82,956/- was not the trading receipt of the assessee. Thus, the Hon'ble Tribunal did not consider the decisions of Hon'ble Supreme Court in the matter. It was also pointed out that while the assessee falls within the jurisdiction of Hon'ble Delhi High court, its principal place of business is situated in the State of Uttar Pradesh and, therefore, the decision of Hon'ble Allahabad High Court in the case of Kissan Sehkari Chini Mills Ltd. (supra) should be followed. While coming to its conclusion, the Hon'ble High Court had considered the decision of Hon'ble Supreme Court in the case of Sahney Steel & Press Works Ltd. (supra), in which it was inter-alia held that if the subsidy is given for running the business, then, it will be revenue in nature. The assessee had an existing unit and the advantage was given to it under the Scheme for making it viable by reducing its interest burden. In terms of the decision of Hon'ble Supreme Court in the case of aforesaid Sahney Steel & Press Works Ltd., the sale price was in the nature of revenue receipt.
6.2 Reliance was also placed on the decision of Hon'ble Supreme Court in the case of KCP Ltd. v. CIT . The facts were that the assessee manufactured sugar and other items. It followed mercantile method of accounting. The price of levy sugar in the accounting year relevant for assessment year 1972-73 was fixed at Rs. 120.30 per quintal. On a Writ Petition, the Hon'ble Andhra Pradesh High Court passed an interim order under which the assessee was permitted to sell sugar at the rate prevailing prior to the aforesaid fixation of price. The assessee sold sugar @ Rs. 131/- per quintal and thereby collected additional amount of Rs. 14,96,130/-. The writ petition was finally dismissed on 18.2.1971 and, therefore, the interim order got vacated automatically. However, there was no order that the excess amount collected by the assessee would be refunded to the purchaser. Thus, the dismissal of the writ petition had the effect that the assessee could not sell sugar at a rate higher than the notified rate as the interim order was vacated. From 1st April, 1976. The Levy Sugar Price Equalization Fund Act, 1976, came into force which provided that excess amount collected from the purchasers shall be credited to the Fund irrespective of the fact whether such collections were made prior to the enactment or subsequent to it. The ITO treated the impugned amount of Rs. 14,96,130/- as the trading receipt for computation of income for assessment year 1972-73. The Tribunal held that the amount was not taxable while the High Court held that the amount was taxable. On appeal, the Hon'ble Supreme Court pointed out that the excess amount of Rs. 14,96,130/- was realized by the assessee in the course of its business activity and represented the sale price of sugar although the right of the assessee to realize this amount was subject matter of dispute. The amount was kept in a separate account. However, that would not make any difference as maintenance of a separate account would not alter the nature of the receipt if it actually was a trading receipt. The transfer of the amount to the fund would not have any bearing on the taxability of the amount in the assessment year 1972-73 as the amount was a trading receipt in that year. Thus, the case of the learned DR was that what the assessee realized was nothing but the sale price of sugar, the same was a trading receipt in terms of the aforesaid decision.
6.3 The assessee had relied on the decision of Hon'ble Supreme Court in the case of Sahney Steel & Press Works Ltd. (supra) before the Tribunal. The learned DR was of the view that the ratio of this decision was against the assessee. The finding of the Hon'ble Court was that if the subsidy from the public fund is made available to the assessee to assist in carrying on his business, the receipts will be trading receipts. The issue whether the amount received is revenue or capital in nature has to be decided having regard to the purpose for which subsidy was given. In this connection, the source of the fund was quite immaterial. However, if the subsidy is granted for setting up a new business, or to complete an on-going project, the same partakes the character of a capital receipt. The case of the learned DR was that the scheme permitted the assessee to sell more sugar in free market with a view to realize higher price and thereby reduce its debt liabilities, which will lead to reduction in interest burden. The sale price is nothing but revenue receipt as interest was revenue expenditure. Therefore, in either situation, the receipt would be revenue in nature.
7. In reply, the learned Counsel pointed out that the assessee's case is squarely covered by the order of Third Member of the Tribunal in its own case for assessment years 1993-94 and 1996-97 reported at 97 ITD 78. Being the decision of Third Member, its force in terms of precedence was the same as that of the order of the Special Bench of the Tribunal. Therefore, it was argued that the order should be followed. It was explained that it will be incorrect to say that the aforesaid order was based upon the decisions High Courts and the orders of the Tribunal only. In this connection, a reference was made to paragraphs 29 and 30 of the order, in which the assessee had relied upon the decision of Hon'ble Supreme Court in the case of Sahney Steel & Press Works Ltd. (supra); Calcutta High Court in the case of CIT v. Balrampur Chini Mills Ltd. (19991)238 ITR 445 and the order of the Tribunal, Madras "A" Bench in the case of Tamil Nadu Sugar Corporation Ltd. v. ITO (1994) 48 ITD 345. Thus, it was argued that the decision of Hon'ble Supreme Court in the case of Sahney Steel & Press Works was also considered by the Tribunal.
8. Further, he referred to the Statement of Facts filed before the learned CIT(A), in which it was inter-alia mentioned that the impugned amount was incentive received by it by way of higher free-sale quota of sugar produced by it in its new industrial unit, Ramgarh Chini Mills, Ramgarh, Uttar Pradesh, in accordance with Clause 12 of Sugar Incentive Scheme, 1993, dated 10.3.1993 of the Central Government. This amount was required to be utilized by the company specifically for repayment of term-loan and interest thereon obtained by it from banks, central financial institutions and Sugar Development Fund for financing the capital outlay of its Ramgarh Chini Mills plant. Therefore, the impugned amount constituted a capital receipt. However, since the amount was in the nature of subsidy within the meaning of Explanation 10 to Section 43(1) of the Act, it was deducted from the cost of fixed assets for computing the deduction of depreciation allowable to it. The details of term loan, the loan repaid and the monetary value of the incentives availed off under the scheme were tabulated in the Statement of Facts, which is reproduced below:
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Financial year Term loan from Central Loan Monetary value of
ended 31st March Financial repaid/interest the incentive
Institutions/Banks/Sugar thereon paid during availed of under
Development Fund the financial year the Sugar
outstanding at the end (Rs. crores) Incentive Scheme,
of the relevant 1993.
financial year
(Rs. crores)
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1995 15.30 Nil Nil
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1996 14.23 1.07 0.23
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1997 16.54 2.36 1.87
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1998 13.51 3.03 2.87
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1999 10.48 4.94 3.91
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2000 14.41 8.54 3.42
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2001 23.01 6.68 2.51
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2002 18.67 7.23 0.80
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9. It was explained that in view of various decisions, the impugned amount was a capital receipt, which could also not be taxed Under Section 28(iv) as the receipt was not in kind. In view of various averments made in the Statement of Facts, it was argued that the receipt was capital in nature. In regard to the decision of Hon'ble Allahabad High Court in the case of Kissan Sehkari Chini Mills Ltd. (supra), it was pointed out that it was an ex-parte judgment and a review petition was pending before the Hon'ble Court against the order. As against the aforesaid, there were a number of cases decided in favour of the assessee after due deliberations from both sides and in all such cases the factories were situated in the State of Uttar Pradesh. In this connection, reliance was placed on the decision of Hon'ble Calcutta High Court in the case of CIT v. Balrampur Chini Mills Ltd. (supra). In that case, the question before the Hon'ble Court was whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that realization through additional free-sale of sugar quota under the Sampath Incentive Scheme was in the nature of capital receipt? The Hon'ble Court mentioned that in order to overcome the problem of shortage of sugar for public, the government had introduced a scheme in 1975, which was modified in November, 1980. Under the Scheme, two incentives were given -(i) free-sale sugar quota was increased, and (ii) concession was given in Excise Duty. These incentives were subject to the condition that either a new factory was set up or the existing sugar factory was expanded. The additional quota for free sale of sugar was available to the assessee only if he paid the term-loan taken from the central financial institutions out of the realization of sale of such quota. The Hon'ble Court referred to the decision of Hon'ble Apex Court in the case of Sahney Steel & Press Works, in which it was held that it is not the source from which the amount is paid to the assessee which determines the question whether the subsidy payment was of revenue or capital nature. This question will have to be determined by having regard to the purpose for which subsidy is given. If the subsidy is given for running day-to-day business, then it is a revenue receipt. However, if it is given to meet the capital cost of the asset, then it is a capital receipt. The facts were that the incentive was given for repayment of loan, which was taken for expansion of plant & machinery, a capital asset. Accordingly, following the decision in the case of Sahney Steel & Press Works, it was held that the receipt is capital in nature. The learned Counsel pointed out that this decision has become final as the revenue has not filed any appeal against the decision of Hon'ble Calcutta High Court. Therefore, this issue cannot be agitated by the revenue in any other case also.
10. Further, he relied on the decision of Hon'ble Madras High Court in the case of CIT v. Ponny Sugars & Chemicals Ltd. (2003)260 ITR 605. The facts in that case were more or less similar to the facts in the case of Balrampur Chini Mills Ltd. The assessee was entitled to the benefit of the scheme of the Government, floated with a view to augment the production of sugar in the country by encouraging setting up new sugar factories and expansion of existing factories. The incentive was to be used for repayment of loans of the banks and financial institutions taken for the purpose of meeting capital cost. It was held that since none of the authorities below had given any finding that any part of the incentive was not used for discharging the loan, which was admittedly obtained for purchasing capital equipment, the incentive in the form of higher free sale quota of sugar should be treated as capital receipt. In coming to this decision, the cases of Balrampur Chini Mills Ltd. (supra), Sahney Steel & Press Works Ltd. (supra) and Tuticorin Alkali Chemicals & Fertilizers Ltd. v. CIT were referred to.
11. He also relied on the decision of Hon'ble Supreme Court in the case of CIT v. Rajaram Maize Products (supra). The question in that case was whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the power subsidy received by the assessee was a capital receipt, not liable to be taxed within the meaning of Section 28(iv) of the Income-tax Act, 1961? The Hon'ble Court pointed out that power subsidies were of revenue nature, as held in the case of Sahney Steel & Press Works. The terms under which the subsidy was given clearly suggest that it was of revenue nature inasmuch as it went towards the deduction of electricity bill. On the basis of this decision, the case of the learned Counsel was that the subsidy could be revenue in nature or capital in nature, depending upon the scheme and intent of the scheme. However, in the case of the assessee, the subsidy was given to pay the cost of plant & machinery and, therefore, it was capital in nature.
12. The learned AR has argued that the decision in the case of Kissan Sehkari Chini Mills Ltd. (supra) was the latest decision on the subject, therefore, it should be followed. In this connection, reliance was placed on the decision of Hon'ble Supreme Court in the case of CIT v. Vegetable Products Ltd. , in which it was held that when a court finds that the language of a taxing provision is ambiguous or capable of more than one meanings, then, the court should adopt an interpretation which is favourable to the assessee, more particularly when it is in relation to the levy of a penalty. In view of this decision, his case was that it is not the latest but the favourable decision, which should be followed.
13. In the rejoinder, the learned DR referred to the utilization of the incentives over a number of years which has already been tabulated. It was pointed out that the repayment of loan of Rs. 7.23 crore was towards loan and interest. While there could be some ambiguity in respect of repayment of loan, there is no such ambiguity in respect of payment of interest, which is in the revenue field and, therefore, the incentive to that extent will be in the revenue field. It was reiterated that the decision of Third Member in the case of the assessee did not consider the decision in the case of Sahney Steel & Press Works. The case of Balrampur Chini Mills Ltd. laid down the test of the purpose for which the incentive is to be used. The order of the Tribunal, Vishakhapatnam Bench in the case Additional CIT v. Chodavaram Cooperative Sugars Ltd. (2003) 86 ITD 139 laid the tests of the intent and purpose of the scheme and if it was to meet revenue expenses, then, it will be revenue in nature. It was also his case that any direction regarding deduction of cost of plant & machinery for the purpose of depreciation will be redundant to the extent that the amount was used for payment of interest.
14. We have considered the facts of the case and rival submissions. From the Statement of Facts, which have not been controverted in any manner, it is clear that the assessee received higher quota for free-sale sugar under the Sugar Incentive Scheme, 1993, with the stipulation that the sale proceeds will be utilized for repayment of term-loan taken from banks, central financial institutions and Sugar Development Fund. In the year under consideration, the monetary value of the incentive was Rs. 80.00 lakh. The assessee had to pay term-loans to the extent of Rs. 18.67 crore. As against the aforesaid, the assessee paid loan and interest amounting to Rs. 7.23 crore. There is no finding from the lower authorities that the impugned sum of Rs. 7.23 crore paid by the assessee to the banks and financial institutions contained loans of an amount less than Rs. 80.00 lakh. Thus, there is no finding that the loan repaid was less than the incentives. The figures in the table also lead to a conclusion that loan exceeding Rs. 80.00 lakh was repaid in this year. Apart from the decision in the case of Kissan Sehkari Chini Mills Ltd., all other cases have laid down the ratio that the issue whether a particular incentive was in the capital field or the revenue field has to be decided by taking into account the intent of the scheme and the utilization of the incentive. If we do that in this case, it is found that the incentive of about Rs. 80.00 lakh was utilized for repayment of loan to the banks and financial institutions, which was also a pre-requisite for availing of higher quota for free-sale sugar. Thus, it is a case where sale proceeds of a portion of assessee's product was encumbered by an obligation to use the proceeds for payment of term-loan taken for purchase or plant & machinery, a capital asset. In normal situation, sale of sugar to the government or in the free market will lead to revenue receipt. However, in this case the assessee could not have utilized the corresponding sale proceeds in any manner it liked. In other words, such sale proceeds were a kind of obstructed receipt to be utilized for a specific purpose of repayment of loan. That was also done by the assessee. Therefore, there was a kind of over-riding title of the banks and financial institutions in respect of the impugned receipt in the sense that they were to receive this amount for satisfaction of their debt advanced for purchase of machinery and plant by the assessee. Therefore, it can be concluded that the amount was utilized in the capital field. Needless to say that this view is supported by orders of Tribunal in earlier years as well as decisions in the case of Ponny Sugar & Chemicals Ltd. and Balrampur Chini Mills Ltd. In these cases, the courts had the benefit of arguments from both sides, while the decision in the case of Kissan Sehkari Chini Mills Ltd. was ex-parte the assessee. In the case of Vegetable Products Ltd. (supra), the Hon'ble Court held that in case of ambiguity, the same should be resolved in a manner beneficial to the assessee. Therefore, even if the decision of Hon'ble Allahabad High Court is taken as a good law, in view of the contrary decisions in the aforesaid two cases taken by Hon'ble Madras and Calcutta High Courts, the view favourable to the assessee will have to be taken. We may also add that all the aforesaid cases were decided on the footing that extra quota was some kind of incentive given to the assessees. However, the incentive was not given in monetary term, but in terms of making larger proportion of the production of sugar available to the assessee for sale in free market so as to enable the assessee to realize higher sale proceeds. The receipts were to be used for discharge of capital liability. In normal circumstances, as pointed out earlier, the receipts would have been revenue in nature. However, since there was an attached obligation of discharging capital liability, the receipt partook the character of capital receipt. Thus it is held that the receipt was in the capital field.
15. Having decided the receipt to be capital in nature, it is a corollary that the amount of such capital receipt should be deducted from the cost of machinery and plant, as provided under Explanation 10 to Section 43(1), inserted in the Act with effect from 1.4.1999 if the receipts are taken as subsidy, grant or reimbursement. However, the receipts are capital in nature because of attached obligation in relation to payment of loan in respect of fixed assets, therefore, the receipts will go to reduce the actual cost even without reference to Explanation 10. Therefore, the Assessing Officer is directed to reduce the cost of fixed assets by the impugned amount for the purpose of deduction of depreciation. In the result, this ground is dismissed.
16. Ground No. 5 is against the finding of the learned CIT(Appeals) in which the Assessing Officer was directed to allow depreciation on Dish Antenna System. It is also mentioned that this matter is pending before the Hon'ble High Court of Delhi. In this connection, it was explained to the Assessing Officer that the assessee had incurred expenditure on installation of Dish Antenna System in the previous years relevant to assessment years 1989-90 and 1990-91. The assessee had also incurred expenditure on computer software installation in the previous year relevant to assessment year 1992-93. These expenses were claimed to be revenue in nature. However, the learned CIT(A) held that the expenses were capital in nature. The Assessing Officer did not raise any query in this matter, but he also did not allow the deduction of depreciation Under Section 32 on the aforesaid capital expenditure on the ground that the department had not accepted the order of the learned CIT(A) in these matters. We are of the view that since expenses were held to be capital in nature, the assessee is entitled to deduction of depreciation on the written down value of these assets as per applicable rates. However, he may verify before allowing such deduction as to whether the position that the expenses were capital in nature continues to exist till date. Thus, this ground is treated as allowed.
17. In the result, the appeal is partly allowed, as indicated above.
Order pronounced in the open court on June 22nd, 2007.